Comparing Management and Franchise Agreements

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sha616_valuing-HMA_check1.xlsx
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Instructions

SHA616: Valuing Hotel Intellectual Property and Structuring the Capital Stack
School of Hotel Administration, Cornell University
Check: Valuing the Management Agreement
Instructions:
Use this spreadsheet to answer questions about valuing the management agreement for the Hungerford Hotel.
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MFeeValuation

Hotel Management Fee Calculation and Valuation (all figures $'000)
Overall Assumptions for Analysis Overall Assumptions for Analysis
OperatorKey Money Contribution ($'000) $0 Base Fee (% of Hotel Revenues) 3.25%
Multiple for Net Base Fees at End of Analysis Period 6.0 Operating Expenses of Management Company (% of Basic Fee) 75%
Multiple for Incremental Fees at End of Analysis Period 4.5 Incentive Fee (% of CF after 10% Owner's Priority -$6.6M) 26.00%
Multiple for Net System Reimbursible Expenses at End of Analysis Period 6.0 System Reimbursible Expenses as a Percent of Total Revenues 2.75%
Discount Rate for Net Basic Fees 10% System Reimbursible Expenses - Costs (% of SRE Revenues) 100%
Discount Rate for Incentive Fees 16% Number of Shares Outstanding ('000) 100,000
Discount Rate for Net System Reimbursible Expenses 10% Number of Rooms 300
Cash Value
Over Analysis Present Discount Value
Annual Flows from Operations Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Period Value Rate per Room
A. Hotel Revenues $ 19,640 $ 23,884 $ 26,115 $ 26,940 $ 27,746 $ 28,534 $ 29,343 $ 30,076 $ 30,830 $ 31,598 $274,706
B. Hotel GOP before deducting Management Fees $5,163 $8,129 $ 9,576 $ 9,944 $ 10,279 $ 10,587 $ 10,904 $ 11,154 $ 11,413 $ 11,670 $98,819
C. Annual Debt Service ERROR:#REF! ERROR:#REF! ERROR:#REF! ERROR:#REF! ERROR:#REF! ERROR:#REF! ERROR:#REF! ERROR:#REF! ERROR:#REF! ERROR:#REF! ERROR:#REF!
Revenues From Management Contract
Base Fee Calculation
Hotel Revenues $19,640 $23,884 $26,115 $26,940 $27,746 $28,534 $29,343 $30,076 $30,830 $31,598
Times: Base Fee Percentage 3.25% 3.25% 3.25% 3.25% 3.25% 3.25% 3.25% 3.25% 3.25% 3.25%
Equals: Base Fee $638 $776 $849 $876 $902 $927 $954 $977 $1,002 $1,027 $8,928 $5,307.08 10% $17.69
Incentive Fee Calculation
Adjusted GOP (Line B under "Annual Flows" less Base Fee) $4,525 $7,353 $8,727 $9,068 $9,377 $9,660 $9,950 $10,177 $10,411 $10,643
Less: Owner's Priority of $6.6 Million $6,600 $6,600 $6,600 $6,600 $6,600 $6,600 $6,600 $6,600 $6,600 $6,600
Equals: Cash Flow After Owner's Priority ($2,075) $753 $2,127 $2,468 $2,777 $3,060 $3,350 $3,577 $3,811 $4,043
Times: Incentive Fee Percentage 26.00% 26.00% 26.00% 26.00% 26.00% 26.00% 26.00% 26.00% 26.00% 26.00%
Equals: Incentive Fee $0 $196 $553 $642 $722 $796 $871 $930 $991 $1,051 $6,751 $2,615.26 16% $8.72
System Reimbursible Expenses Calculation
Hotel Revenues $ 19,640 $ 23,884 $ 26,115 $ 26,940 $ 27,746 $ 28,534 $ 29,343 $ 30,076 $ 30,830 $ 31,598
Times: SRE Fee Percentage 2.75% 2.75% 2.75% 2.75% 2.75% 2.75% 2.75% 2.75% 2.75% 2.75%
Equals: System Reimbursible Expenses - Revenues $540 $657 $718 $741 $763 $785 $807 $827 $848 $869 $7,554 $4,490.61 10% $14.97
Total Revenues $0 $1,178 $1,629 $2,120 $2,258 $2,387 $2,508 $2,632 $2,734 $2,841 $2,947 $23,234 $12,412.94 $41.38
Expenses & Costs of Management Contract
Operating Expense Calculation
Basic Fee $638 $776 $849 $876 $902 $927 $954 $977 $1,002 $1,027
Times: Operating Expenses as % of Basic Fee 75% 75% 75% 75% 75% 75% 75% 75% 75% 75%
Equals: Operating Overhead $479 $582 $637 $657 $676 $696 $715 $733 $751 $770 $6,696 $3,980.31 10% $13.27
Impact Calculation
Total of Base Impacts $0 $30 $31 $31 $33 $34 $34 $35 $37 $38
Total of Incremental Impacts $0 $24 $25 $27 $27 $28 $29 $29 $30 $31
Total Impact $0 $54 $56 $58 $60 $62 $63 $64 $67 $69 $553 $315.77 10% $1.05
System Reimbursible Expenses - Costs
System Reimbursible Expenses - Revenues $540 $657 $718 $741 $763 $785 $807 $827 $848 $869
Times: SRE - Costs as Percentage of SRE Revenues 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
System Reimbursible Expenses - Costs $540 $657 $718 $741 $763 $785 $807 $827 $848 $869 $7,554 $4,490.61 10% $14.97
Key Money Contribution $0 $0 $0.00 $0.00
Total Expenses and Costs $0 $479 $636 $693 $715 $736 $758 $778 $797 $818 $839 $7,249 $8,786.69 ` $29.29
Net Annual Flows $0 $700 $993 $1,427 $1,544 $1,651 $1,750 $1,853 $1,937 $2,022 $2,108 $15,985 $3,626.25 $ 12.088
Pre-Tax Earnings Per Share $ - 0 $ 0.007 $ 0.010 $ 0.014 $ 0.015 $ 0.017 $ 0.018 $ 0.019 $ 0.019 $ 0.020 $ 0.021 $ 0.160
End of Analysis Period Valuations
Net Base Fee Value at End of Analysis Period $1,126 $1,126 $434.28 10%
Incentive Fee Value at End of Analysis Period $4,730 $4,730 $1,072.30 16%
Net System Reimbursible Expenses Value at End of Analysis Period $0 $0 $0.00 10%
Total End of Analysis Period Values $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $5,857 $5,857 $1,506.58 $5.02
Total Present Value Total Present Value and Value per Room $ 5,132.83 $ 17.109